Assignment 2 (Due 30 November 2023)

Supply Chain Analytics

QUESTION 1 – CASE STUDY

Andrew Petter, vice president of supply chain at CW thought that his current production and
distribution network was not appropriate given the significant increase in transportation costs
over the past few years.. A quick decision on building one or more new plants could save the
company significant amounts in transportation expense in the future.

CW was founded in the late 1980s and produced 2 products and demand for the two products
are shown in Table 1.

Table 1: Regional Demand (in ‘000s)

Zone Northwest Southwest Northeast Southeast Upper Lower

Midwest Midwest
Product A 50 90 120 70 120 65
Demand
Product B 500 700 1000 600 900 800
Demand

The company currently had one plant that produced both products. Product A line had a
capacity of 1 million units , a variable cost of $20 per unit and an annualized fixed cost of $1.5
million a year. Product B line had a capacity of 5 million units, a variable cost of $10 per unit
and an annualized fixed cost of $5 million a year. Table 2 shows the transportation costs per
unit (for both products) from Chicago plant to six regions.

Table 2: Transportation Cost from Chicago

Upper Lower
Northwest Southwest Northeast southeast Midwest Midwest
Chicago 6.32 6.32 5.76 5.96 3.68 4.04

Question

a) Develop the model and solve using Excel Solver to determine the annual cost of
serving the entire nation from Chicago?

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b) Andrew had identified 4 others potential sites for new plants ( Princeton, New Jersey,
Atlanta and Los Angeles). Each new plant could have a Product A line, Product B line,
or both. A new Product A line had a capacity of 1 million units, a variable cost of $20
per unit and an annual fixed cost of $1.5 million. A new Product B line had a capacity
of 2 million units, a variable production cost of $10 per unit and an annual fixed cost
of $2.2 million. The transportation costs per unit from four plants to six regions are as
shown in Table 3.

Table 3: Transportation Cost

North South Upper Lower

west west Northeast southeast Midwest Midwest
Chicago 6.32 6.32 5.76 5.96 3.68 4.04
Princeton 6.60 6.60 3.68 4.08 5.76 5.92
Atlanta 6.72 6.48 4.04 3.64 5.92 4.08
Los Angeles 4.36 3.68 6.72 6.60 6.32 6.32

Andrew had to decide whether to build a new plant and if so, which production lines
to put into the new plant. Assume that the Chicago plant will be maintained at its
current capacity but could be run at lower utilization.

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QUESTION 2
A chain of health and beauty firm plan to build a central plant. Currently, the raw material of
product are purchased from 4 suppliers (S1,S2, S3 and S4). The central plant would deliver
the product to distribution centers DC1,DC2,DC3 and DC4. Locations of all suppliers and
distribution centers on an x-y grid, transportation costs on a ton per mile basis, and total
tonnage are shown in Table 4.

Table 4
Sources/ Transportation
Quantity in
Distribution Cost $/ton mile Xn Yn
Tons (Dn)
centers (Fn)
Supply
S1 1.1 600 9.7 3.5
S2 1.2 300 9.0 2.4
S3 1.4 250 10.1 2.1
S4 1.2 400 11.0 4.0
Distribution
center
DC1 2.00 200 9.0 0.7
DC2 2.00 500 10.7 0.5
DC3 2.00 300 11.5 1.5
DC4 2.00 600 9.8 1.4

a) Formulate and solve a model using Excel Solver that will minimize the shipping costs
to the central plant.
b) Where should a new central plant be located?
c) What is the total shipping cost based on the location of new plant obtain in (b)?